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Precious Metals Strategy: Bullion or Jewelry? - Jeff Nielson

Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

January 22, 2016

Bullion confiscation has been a risk and concern which has
been analyzed in
previous
commentaries
and examined from different
angles
, so it’s not surprising that this was also the subject of a recent
reader question. Part of the answer to that query raised a new topic: the “anti-bullion
confiscation” strategy.

What is the easiest way for silver- and gold-holders to
avoid the harm and impact of any bullion confiscation decree which might be
announced? The answer is to not hold bullion, or rather, not to acquire all
your precious metals holdings in the form of bullion.

By now, most readers are aware that historically, the
world’s largest bullion market and thus largest repository of bullion is found
in India, distributed amongst its enormous 1+ billion population. Indeed, the
comically fraudulent attempt by the bankers to “liberate” some, most, or all of
the 20,000 tonnes of gold estimated to be held in India was the subject of a
recent
commentary
.

Despite the large income and wealth disparity in India, the
majority of gold and silver held in India is distributed amongst its massive
peasant/agrarian population. The majority of this population either refuse to
use (or trust) banks, or simply lack access to such financial services
altogether.

As a consequence of this reality, the modest amounts of
wealth accumulated by these families is invariably held in silver and gold.
However, Indians don’t carry their silver or gold in the form of coins, or even
store it in the form of bars. They wear it, in the form of jewelry, typically
hung around the necks of Indian women.

In North America (and the West, in general), “jewelry” and
“bullion” are essentially entirely independent concepts. We buy jewelry for vanity,
or to earn the favour of females; we exchange our paper currencies for silver
or gold bullion as a preferred strategy for wealth preservation. Perhaps it is
time for our populations to eliminate that distinction and merge these two
activities into a single strategy.

Regular readers are fully aware of the criminalized nature
of our governments and economies, with the nexus of all that corruption
emanating from the financial sector (under the control of the banking
crime
syndicate
). The actions of these regimes have become increasingly lawless,
with the theft-of-assets known as
“the
bail-in”
being the most extreme example to date.

In such societies, it is no wonder that the concern of
bullion confiscation becomes an increasingly larger issue in the minds of
precious metals holders. For this reason, “diversifying within the sector” has
been a frequent theme of previous commentaries. Hold silver
and gold. For those who consider
themselves competent to engage in equities investments, spread some of your
precious metals holdings into the extremely
suppressed
and undervalued
gold and silver miners as well.

Now we have another example and means of diversifying within
the sector: holding our physical silver and gold in the form of bullion
and jewelry. We should remember that
previous acts of bullion confiscation in Western societies (by the US
government in
1933
and 1934)
focused exclusively on bullion: coins and bars of gold and silver.

Numismatic coins were exempted from seizure. However,
“bullion certificates” were included, thus in any modern confiscation, all
bullion held in “funds” or “accounts” would be the first bullion seized. We
cannot be certain that numismatic coins would be exempt in any future seizures.

However, there was certainly never any thought given to
confiscating silver or gold jewelry in those US seizures. Even the most lawless
of regimes would be extremely hesitant to attempt to invoke a jewelry confiscation
as part of any broader bullion confiscation perpetrated against our
populations.

The arguments against attempting to perpetrate any sort of
jewelry theft or confiscation are numerous and powerful, and they begin with
our still-strong cultural attachment to the world’s only form of
Honest Money.
Thanks to decades of anti-bullion brainwashing, only a tiny percentage of our
populations currently have the prudence to store some or most of their wealth
in the form of silver or gold bullion.

Conversely, all of us, except for the growing
population
of desperately poor, have at least a few items of gold or silver
jewelry in our possessions. Indeed, with respect to the married majority, gold
engagement rings and wedding bands are regarded by most as an essential symbol
of that commitment. As well (particularly for the younger and/or more avante-garde
segment of the population), body-piercing is now endemic in our culture.

Much of our population retains a literal physical attachment
to their gold and silver. Meanwhile, for the more affluent, there is perhaps an
even stronger
wealth attachment to
jewelry. For the wealthy of the West, just as with the peasant population of
India, gold jewelry (in particular) is a symbol of wealth and status.

For these reasons (and more), it is virtually unthinkable
that Western corruption would descend to the invasive extreme of any sort of jewelry
confiscation. And for that reason, precious metals holders may decide that now
is the time to consider acquiring jewelry as part of their overall wealth
preservation strategy.

Here it must be understood that there are pros and cons
involved, so even those who are most fearful of bullion confiscation — or simply
most enamoured with jewelry — would not want to take this strategy to an
extreme. The first con to consider here is cost (and thus efficiency). Swapping
our paper for gold or silver jewelry inevitably yields far fewer
ounces-per-dollar, as we pay for the craftsmanship involved in the fabrication
of the jewelry followed by a retail mark-up that is usually higher than what we
experience in swapping our paper for bullion.

We also need to consider the reduced liquidity of jewelry.
If one needed to “raise cash” for an item of jewelry today, the options range
from bad to worse. Selling jewelry back to a jeweler inevitably has a steep discount
attached, meaning we lose for a second time in our paper-for-jewelry strategy.
Sinking even lower, we can head to pawn shops to attempt a jewelry-for-cash
swap and experience an even greater price shock as we are told what our gold or
silver jewelry is (supposedly) worth.

Faced with those concerns, larger and/or wealthier precious
metals holders may see
foreign
storage
of their bullion as a means of avoiding both the risk of domestic
confiscation and the transaction costs involved in storing our wealth in the
form of jewelry. Yet here as well, there is no perfect strategy available.

For even those individuals who choose most wisely in
shopping for a “safe” jurisdiction, the risk of bullion confiscation in this
second jurisdiction will still be greater than zero. A government which appears
honest today could morph into something more sinister tomorrow, or simply a new
election can result in a complete change in the political landscape.

Then we have a different form of liquidity concern. Not only
is there time (and cost) involved in choosing to retrieve one’s bullion held in
a different jurisdiction, but we could face a far more serious impediment as we
think through such a strategy.

Suppose we choose to store some of our precious metals
holdings overseas, and we do so to escape a potential bullion confiscation
event, and then such a seizure does occur. If we cannot legally hold gold or
silver bullion, we certainly will not be able to legally ship such bullion back
to our own jurisdiction (and possession) if or when we require some of that
bullion to satisfy immediate liquidity demands.

Storing a large portion of our wealth overseas essentially
implies a commitment to relocate, in any worst-case scenario. If we couldn’t
bring our bullion home (over the foreseeable future), then we would need to
move to wherever our bullion was stored. No matter how we engage in our
diversification-within-the-sector strategy, we find no perfect answer.

Our governments have clearly abandoned the Rule of Law, as
witnessed by the systemic,
financial
crime
in which they not only facilitate, but participate. Given this
reality, no matter how carefully we plan, we cannot be immune from all
potential (lawless) acts administered with brute force by fascist regimes.

We have liquidity concerns. We have safety concerns. We have
cost and efficiency concerns. We diversify within the sector, because no one
strategy can possibly address all of these concerns. It is thus important for
readers to become fully apprised of all their options (and the risks involved),
and then to allocate their wealth amongst those options in a manner most personally
optimal.

[Personal disclosure: I hold silver/gold bullion, as well as
shares in silver and gold mining companies]

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

I am surprised that you would forget about Bitgold, which makes it possible to store up to 2500 grams of gold elsewhere. It is now possible to spread our gold holdings around the world in safer jurisdictions, while enjoying instant electronic access to our holdings that can be suddenly moved to another safer jurisdiction in seconds, should any of those governments who have control over the safety of our gold, suffer a psychotic break. Bitgold can also be used as legal tender and you can send gold or any currency to anyone, anywhere in the world, for free. When currencies start to fail, you can have your employer pay you in Bitgold and you can also spend your gold electronically with your Bitgold debit card. For the other metals, other than gold, Bitgold's Gold Money division in the channel islands, will store it safely.

Only a really stupid person would voluntarily surrender their precious metals, or leave them vulnerable to seizure by a crooked bunch of pirates. It is easy and completely legal to buy them in the first place with cash, to maintain anonymity. Secondly, there is no record-keeping required and if they come looking, practice this response: "I'm sorry to disappoint you but I am a poor man and cannot afford the luxury of protecting the theft of my purchasing power by corrupt governments by stockpiling precious metals, so NO, I do not have any for you to take". Or in the event that they know you have bought some over the years from being foolish and paying with debit or credit card and leaving a paper trail (sometimes unavoidable), the answer would be a bit different: "I did have some holdings many years ago but it turned out to be a lousy investment, due to the continuous monkey-punching of the price down by the Comex, that I just sold it all to a stranger (for cash) and lost a lot of money, just so I could eat and feed my family. I have a couple of one ounce bars of silver, and if your government is so broke and needs to steal my hard-earned money that I already paid the income tax on when I earned it, you're welcome to them". Always keep a few bars in an obvious hiding place, like in a safe, or in a drawer. The rest of your holdings would be scattered all over the place and buried, where nobody can find it.

I know a goldsmith who will take bullion and melt it and turn it into wire or rods that can be pushed into long holes drilled out of a 2x4 that becomes one of many studs in your house or an outbuilding, or made into bolts and washers that can become part of a steel structure and painted to look like all the other cheap steel bolts, or a long gold rod inserted into a long hole drilled into a huge boulder on your property that is big enough that it will never be moved. Nobody would ever find them and could be much safer than storing it all in any vault. In a vault, the Pigs know what is hiding inside and at the stroke of a judge's gavel, they could be inside and plundering your wealth within hours. Or a quanset hut with a few 24 karat gold and silver bolts and washers. Who's going to even think of looking there?

Of course, you would want to put it in your will or a sealed letter to your lawyer, to be opened only in the event of your untimely demise. On second thought, better to leave it in two safes and leave the combination to someone more trustworthy. The words "honest" and "lawyers" should never be used in the same sentence. When your will is read, your lawyer will only have a combination for one safe and another lawyer somewhere else will have the other combination and each safe will contain part of the code to unlock the mystery or how to get to the hidden gold, like a treasure map with two halves. Only the two heirs would know that there are two halves, in case either of the liars, er I mean, lawyers, get any funny ideas. Same goes for any offshore precious metals accounts that will need powers of attorney, safety deposit box keys, account numbers, passwords, copy of the will, and any other information or identification to unlock the treasure. No matter what these thieving psychopaths do or what crooked laws they enact, gold and silver are the remedy for crooked and bankrupt governments. If you give up the wealth that you painstakingly built up through years of work and paying half your income in tax on your hard-earned savings, just because they tell you to, you're a fool. What are you going to live on if you give it to them like a pussy? Gold and silver reigns supreme as non inflatable money. Sometimes you may have to fight and defend what's yours.

Ronald, my principal concern regarding Bitgold is that it exists in a market. Anything which exists in a market can be attacked financially, in various direct and indirect means. I can see people using Bitgold as a tool of commerce. However, I don't think it serves equally well as a vehicle of wealth preservation.

Yes, "hiding gold" (in various ways or places) suffers from a couple of drawbacks. If one person too few knows the location of your bullion, it could end up being lost forever. And if one person too many knows the location of your bullion, it could end up being lost forever.

It has been a few years since Jeff and I have exchanged views. I agree with his reasoning about also investing in jewelry - with a few cautions. Do not buy at retail sources to do it; one pays a premium of 4 to 8 fold the metal value. Most gold jewelery sold in the East is at least 18k and the premiums around 15% - fair value considering labour costs in each piece. There are some smiths in Toronto that only mark up their wares some 25% and their wares are high caret (18k) which is preferable but these people are hard to locate. Buy instead from collectibles stores and shows and pay no more than double melt value (common). Note that these times one can get 95% return on metal value in some retail bullion and coin shops. (Keep in mind that small weight jewelery is more liquid so expect to pay for that aspect too.) Seek out high caret dealers. Go for the higher K items, but any amalgam is fine if cheap enough. Look for broken jewellery at yard sales and estate sales too, and don't be afraid to buy scrap directly from your coin dealer.

Yes, I got a letter from another enterprising reader, who also offered me tips about getting your best bang-for-your-buck with jewelry purchases. Along with buying used, he's currently made an arrangement with a local pawn shop to buy the merchandise they accumulate at a discount price.

The risk of confiscation is real. A few decades ago, the possession of previous metals in the former Soviet Union as well as in Nazi Germany was illegal and was punishable by death penalty. In the Soviet Union, the hoarding of food was at times also illegal and punishable by either death or labor camp. Similar stories happened a few centuries ago during the French revolution. These are all forms of socialism going wild. For that reason, loading up on precious metals (regardless whether in bullion or jewelry) may not be a smart idea in the long run. If you do, then do not store it all in one place. Diversify wildly. The confiscation of precious metals requires criminal thinking. Therefore, to protect your precious metals, you need to think like a criminal as well.

Gold, being money, is at the greatest risk of being confiscated. For that reason, I prefer industrial metals like rhodium, platinum, palladium etc. There are many other elements which pack even more value per mass than gold, but these are not as liquid as the platinum group metals.

If you have lots of money, buy high quality art and stay away from metals. The metals are only for the middle class people with little money.

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